Joint venture companies, like marriages, sometimes end in divorce. So it is for PepsiCo Inc and its partner in southwest China's Sichuan province, a bust-up that provides a stark reminder to other firms.
The message to multinationals thinking of leaping into China is that even as WTO regulations take effect, doing business here remains a somewhat precarious and unpredictable affair.
The companies' long-running dispute came to a head last week when PepsiCo formally filed for corporate divorce in a bid to scrap its joint venture company Sichuan Pepsi, and terminate its union with partner Sichuan Yunli.
Since then, angry finger-pointing and mudslinging has ensued with each party claiming both the legal and moral upper hand.
PepsiCo has alleged that for years, its partner committed a series of violations of cooperation contracts and agreements and has "ravaged" cooperation with the group.
In turn, Sichuan Pepsi has dismissed the allegations, describing them as "sheer fabrication", and accused PepsiCo of commercial hegemonism as well as bullying the joint venture into doing what it wanted.
Qu Zhidi, vice general manager of Sichuan Yunli and a director of Sichuan Pepsi, said that his side was still open to negotiating a "friendly solution".
"We hope the cooperation will survive and develop. We hope they [PepsiCo] will come back to the negotiating table and help the joint venture survive," he said at press conference in Beijing on Friday.
But PepsiCo is taking its long-running battle with Sichuan Pepsi to an international arbitration panel in Stockholm to try to end the partnership set up in 1994 and seek damages for breach of contract.
At the heart of the bitter row between the sodapop makers are difficulties common among many multinationals who have set up shop in China since the country began to court foreign investment in the 1980s.
Who controls the new venture is usually the fundamental problem, said Alex Wang, a lawyer at Jones, Day, Reavis and Pogue.
Losing control
"Often the control of the general management goes to the local people because they are culturally more familiar and have the contacts with the local government," he said.
"And what happens is the foreign partner will find itself in the weird position whereby it's supposed to control the company, but the local managers actually control everything without listening to instructions from the foreign company."
This is particularly true when the multinational's joint venture partner is a state owned enterprise.
If the Chinese side of the venture appoints the management, this makes it even more troublesome due to the difficulty of firing local bosses, said Wang.
But disagreements among corporate partners in today's China are not unlike anywhere else in the world, argues Altheimer and Gray's Fraser White.
"The WTO has changed China. And it's a healthy change from the Chinese perspective," he said.
"Increasingly most of my clients are making money."
The previously common argument in China that operations must be carried out in the "Chinese way" no longer holds ground with multinational corporations, White said.
In April this year, as stipulated by its WTO membership, China clarified the types of industries foreign companies are allowed to invest in and relaxed some of the strict rules on joint ventures which previously forced international companies to tie up with a Chinese partner.
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